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Video Transcript

Mark Struthers (00:00.738)

Hi everyone, this is Mark Struthers from Sona Wealth. And as many of you know, if you’re a Sona client or you follow some of the blogs and posts to media we do, I have, my oldest son is a freshman at the University of Minnesota, Twin Cities, and we’re getting ready for Parents Weekend. We play Michigan State tomorrow. And my oldest son suggested that I do more videos. He said, dad, I can’t believe you don’t have more videos out there on LinkedIn and Insta. He even said TikTok, although I have yet to get on TikTok. But we’re going to try to start doing some more videos and with it being FAFSA season, need-based college aid, I thought this would be a good a good place to start. So we’re going to give you two FYIs. One, normally the FAFSA window for applying opens up in October, the October 1st, the year before school year so October 1st 2023 is for the 2024-25 school year. Because of changes with FASFA, they’ve delayed that to some time in December. So my first FYI is say don’t keep an eye open, don’t forget about it. A lot of aid is first come first serve and even if you’re not kind of on the FASFA spectrum.

It’s good to get it in just to get it done with. You never can tell, especially if you don’t know what school your child is gonna go to. Some private schools have a high sticker price – a high coa cost of attendance. It might make a difference. So keep an eye open for it and get that in.

Secondly with some of the changes with FAFSA are bad. I don’t like to speak in absolutes unless I have to but some of them are just bad but some of them are good – one good change and it might make FASFA more accessible for you is that FASFA no longer looks at your W-2, meaning your work pay stub  – meaning they don’t see your 401k contributions, your pre-tax 401k contributions. Before FASFA would say, hey, if you can afford to contribute that money to your 401k pre-tax, we’re gonna add that back in as being money that’s available for college

Mark Struthers (02:10.066)

I know, it was awful. But that has changed. So FASFA does not look at that now. FAFSA only looks at your 1040, meaning your tax return. So that money that comes from your W-2, if you contribute to the 401k or even like an HSA, something that comes out on your W-2 that doesn’t show up on your 1040 because money just flows through to the top of your tax return. FASFA doesn’t care about that. It does care about what’s on the 1040 so some of those deductions like traditional IRA deductions and things like that those will be added back in. But you can now hide money from FASFA, make those pre-tax contributions, and because

Some of these contribution limits for the 401k are so large, if you can afford to do that, which is a luxury. But some of you higher earners, you could actually get down to where you are very eligible for FAFSA. There’s some of that need-based aid. For someone over the age of 50, the max contribution for 2023, and it changes each year, so just kind of keep these ballpark numbers in mind is $30,000. That’s a lot of income to hide from FAFSA.

You get the tax savings from the IRS and from the state of Minnesota or whatever your state is, and then you possibly get some need-based aid. And if you have your own business to where you can contribute as employer and employee, now again you have to make sure it’s in the right type of account and is done correctly, but you could hide that money from FAFSA – even more because the total max contribution of employer and employee into a person’s 401k is over if you’re over 50 is $73,000. 

Now if you’re under 50 it’s lower quite often folks who have kids in college they’re right around there it’s their late 40s to early 50s but even if you’re under 50 it’s still a very large amount that you can sock away. If you’re using a small business to do it you make sure you do it right.

Mark Struthers (04:25.07)

I ran some numbers and one of it was with a real life client and I just did some hypothetical numbers but I had folks who their SAI which is a student aid index, it used to be the EFC – expected family contribution, an indication of what they expect you to contribute to your child’s college it used to be called EFC expected family contribution but in some cases they would which would mean they probably wouldn’t get any aid, especially if it’s a state school in Minnesota. But if we were able to sock away enough into a 401k, we got that down to $10,000, $15,000, which some of those numbers, especially if you’re going to a private school, that may a higher sticker price, it certainly gets you in the ballpark. And I think one of them was even down well below $10,000. I think it was $7000 – 8,000 that we were able to get that down to that made you very eligible for need-based aid. 

Keep in mind that when you’re talking about tax year for FAFSA, it’s two years prior than the school year when your child started. So those who are starting in 2024-25 school year they’re going to be looking at 2022 taxes. So it’s too late for 2022 to do anything, but when you think about 2023 tax year, which you’ll be doing filling out the FAFSA after October 1st of 2024, hopefully, it’ll be back on schedule for the 2025-26 school year.

Mark Struthers (06:13.922)

You need to start looking at getting that income down, income and or assets. But FASFA is largely income-based. So if you’re going to try to do it, look at the number, see if it’s worth doing, or you could do it for 2024 tax year which you would fill out the FAFSA after October of 2025 for the 2026-27 school year. So because when it comes to income, FAFSA uses that PPY, prior year, you got to do this in advance. I know — it hurts my head too going back and forth. It’s kind of like Star Trek and that old time paradox, time travel paradox thing. But anyway, it might be worth taking a look at. If you were planning on saving for retirement anyway, or maybe you’re able clump bunch in a bunch of retirement savings in one year. So you know, instead of contributing, you know, keep in mind your company  –  you want to take advantage of your company’s match, but maybe you cut back on your contributions one year so that maybe you can get qualified for some aid. 

So something to think about and I hope everyone, whether your student is in college or high school or elementary school, I hope they’re off to a good start. I hope they are post-COVID every year, I’m just thankful that our students are able to have some sense of normalcy. So stay well, everyone. SkiUMha!

Investment advisory services are offered through Sona Financial LLC (DBA Sona Wealth Advisors, Sona Wealth, Sona Wealth Management), an investment adviser registered in the state of MN. Sona Financial only offers investment advisory services where it is appropriately registered or exempt from registration and only after clients have entered into an investment advisory agreement confirming the terms of engagement and have been provided a copy of the firm’s ADV Part 2A brochure and document. 

This video is for educational purposes only. Nothing discussed during this show/episode should be viewed as investment advice. If you have questions pertaining to your specific situation, please consult your own financial professional.

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